Promoting Domestic Energy Production Act

Bill Summary

What this bill does in plain terms: It changes how certain oil and gas drilling expenses are treated when the government calculates a large corporation’s “book minimum tax” base. In 2022, Congress created a 15% corporate alternative minimum tax (CAMT) on “adjusted financial statement income” (AFSI) for very large corporations. AFSI starts from a company’s financial statement (book) income and then applies a set of adjustments spelled out in the tax code (section 56A). One area that created friction is how to handle intangible drilling and development costs (often called IDCs) for oil and gas projects.

IDCs are the non-salvageable costs of getting a well ready to produce—things like labor, site preparation, drilling fluids, and other services. Under long-standing regular tax rules (section 263(c)), oil and gas operators may generally deduct most IDCs right away rather than capitalizing and depreciating them over time. That immediate deduction lowers taxable income and is considered a key feature of the U.S. tax treatment for fossil fuel development.

However, when the new CAMT calculates AFSI, the underlying statute clearly allowed a favorable adjustment for tax depreciation (you could reduce AFSI by tax depreciation and disregard book depreciation), but it did not explicitly extend the same treatment to IDCs. As a result, some oil and gas companies facing the CAMT could not replicate their usual immediate IDC deduction when computing AFSI. Instead, their book income might reflect depletion or capitalization of those costs over time. That meant AFSI—used to measure exposure to the 15% minimum tax—could end up higher than what companies expected based on regular tax rules, effectively increasing the CAMT burden for producers with heavy IDC spending.

This bill amends section 56A(c)(13) to fix that. It adds a specific reference to section 263(c) so that, when computing AFSI, companies can reduce that figure by any IDC deductions they took for regular tax purposes (to the extent allowed in computing taxable income). At the same time, the bill makes a symmetrical change to ensure there is no double benefit: it directs taxpayers to disregard any book depletion expense related to those same IDC amounts when computing AFSI—similar to how book depreciation is already disregarded when tax depreciation is substituted in the AFSI calculation. In short, the bill says: if you get to use the tax-side treatment of immediate IDC expensing in AFSI, you don’t also get to keep the slower book-side depletion expense in AFSI.

The practical effect is to lower AFSI for qualifying oil and gas companies that are subject to the CAMT and that incur substantial IDCs. Many smaller independent drillers are not subject to the CAMT at all because it applies only to large corporations (generally those with average annual AFSI above a high threshold, commonly understood as $1 billion globally for the group). So the relief primarily matters for larger integrated companies and large independents that cross the CAMT threshold. By lowering AFSI, the bill can reduce or eliminate CAMT liability for those companies in years when they spend heavily on drilling and development.

Supporters will argue this is about fairness, consistency, and investment incentives: if regular tax law lets you expense IDCs, the AMT-on-book-income should not claw that back. They say the status quo penalizes U.S. production, distorts investment decisions, and undermines energy security. Critics will contend this is a targeted carveout that weakens the minimum tax base Congress created to ensure highly profitable corporations pay a baseline amount, and that it prolongs tax preferences for fossil fuels at odds with climate goals. The bill applies to taxable years beginning after December 31, 2025, giving companies and the IRS lead time to prepare for the change.

In summary, the bill aligns AFSI more closely with the regular tax treatment of oil and gas IDCs: it allows the immediate IDC deduction to reduce AFSI and requires disregarding related book depletion, mirroring how the law already treats depreciation. This would lower CAMT exposure for large oil and gas firms during heavy drilling periods, with revenue, climate, and energy policy implications depending on one’s perspective.

Pros

Clarifies and simplifies AFSI calculations by aligning treatment of certain oil and gas costs with established tax rules, reducing compliance complexity for companies and the IRS.
Prevents potential double counting or mismatches between book and tax that can distort financial reporting and investment decisions, arguably improving tax neutrality.
Could protect jobs and economic activity in energy-producing regions, including union and skilled trades work tied to upstream development.
May help stabilize domestic supply in the near term, potentially buffering consumers from supply shocks while the energy transition proceeds.

Restores consistent treatment of IDCs by allowing tax-side expensing to carry through to AFSI, preventing the CAMT from penalizing drilling investment.
Supports domestic energy production, jobs, and energy security by lowering after-tax costs for U.S. oil and gas development.
Reduces distortions between book and tax that can alter capital allocation, improving the neutrality and predictability of the tax system.
Prevents an inadvertent tax hike on a strategic industry, helping keep energy prices more stable for consumers and businesses.
Provides clear statutory instruction, reducing uncertainty and potential litigation over the CAMT’s application to IDCs.

Cons

Creates a targeted carveout that narrows the corporate minimum tax base, weakening a key provision of the Inflation Reduction Act meant to ensure large corporations pay a baseline tax rate.
Expands a long-standing fossil fuel tax preference (IDC expensing) into the CAMT regime, encouraging additional oil and gas drilling inconsistent with climate targets and decarbonization timelines.
Likely reduces federal revenue, complicating fiscal priorities such as funding clean energy, infrastructure, or social programs.
Advantages fossil fuels relative to clean energy investments that don’t receive comparable treatment under CAMT, undermining policy parity during the energy transition.
Primarily benefits large oil and gas companies that are actually subject to CAMT, raising fairness concerns about who gains from the change.

May be criticized as a targeted fix rather than broader reform or repeal of the CAMT, leaving other problematic features of the minimum tax in place.
Could invite claims of favoritism toward the fossil fuel sector, complicating broader messaging on fiscal restraint and neutral tax policy.
Some fiscal hawks may worry about revenue impacts absent offsetting spending cuts or broader pro-growth reforms.
By carving out IDCs, other industries might seek similar adjustments, potentially eroding the CAMT base over time and adding complexity.

This bill was introduced on January 23, 2025 in the Senate.

View on Congress.gov:
https://www.congress.gov/bill/119th-congress/senate-bill/224

Jan 23, 2025

Read twice and referred to the Committee on Finance.
Jan 23, 2025

Introduced in Senate

10000

This bill has not yet been enacted into law.

Promoting Domestic Energy Production Act

Bill Summary

Pros

Cons

Introduction

History

Read twice and referred to the Committee on Finance.

Introduced in Senate

Laws Enacted

Related Bills